The mental consequences of not having enough
Eldar Shafir is an Israeli-American behavioral scientist, whose research explores the variety of ways that context affects our reasoning and judgments. In particular, Shafir has focused on decision-making under situations of scarcity, conflict, and uncertainty. He is currently the William Stewart Tod Professor of Psychology and Public Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University.1 Shafir is best known for his work on the behavioral implications of poverty, which forms the basis of his 2013 book Scarcity: Why Having Too Little Means So Much (co-authored with Sendhil Mullainathan). Moreover, Shafir’s research encompasses wider topics of interest within the field of Behavioral Economics, including; choice overload, the ‘money illusion’, and the impact of cognitive biases on decision-making.
Behavioral Economics Evangelist
Shafir has collaborated with some of the most influential academics in the field of behavioral economics, including Amos Tversky and Richard Thaler. His studies in the 1990s and early 2000s contributed to the wider argument that human beings don’t always behave like rational ‘econs’ and often make judgments and decisions that are far from rational. Instead, we tend to be swayed by cognitive biases and external influences. Shafir’s papers have explored several popular topics in behavioral economics including choice overload3, mental accounting<strong4, and the money illusion5.
“When you manage scarce resources, you need to do so with great care. You do not have the luxury that abundance brings of being able to make mistakes. Persistent vigilance is required since any miscalculation or distraction can have dire consequences…. Thus, persistent financial challenges become imposing mental ones as well”.2
The Disjunction Effect
Shafir and Amos Tversky published their theory of the ‘disjunction effect’ in 19926. Let’s take an example to illustrate the idea. Say you have a choice between going to the movies, or going bowling. The movie theatre is five minutes away by car, whereas the bowling alley is forty-five. You’re feeling lazy, so your preference is going to be the movies. However, you’re holding back on making a decision because you don’t know what movies are showing. Ironically, you don’t really care what movies are showing – let’s say you love all types of movies and you know you’ll go to see whatever is on. But for some reason, you don’t commit to the movies until you know what’s showing.
This is the Disjunction Effect. It causes us to delay a decision regarding a course of action due to some uncertainty surrounding a factor that doesn’t really influence our decision anyways! It usually happens because we are afraid to make the wrong decision, and is often seen in business and government when leaders postpone decisions in the face of uncertainty. It bears important implications for strategic decision-making, and awareness of the disjunction effect has boosted the popularity of ‘scenario-planning’ in various industries.
“Solving today’s pressing needs may result in new and more serious financial problems tomorrow. When people ‘tunnel’ by focusing on what’s urgent, other things stay out of mind.”2
Scarcity, Poverty and ‘Why Having Too Little Means So Much’
Shafir’s work on the role our environment plays in our decision-making led him to the subject area he’s best known for – the psychology of scarcity – and in particular, poverty. Much of Shafir’s research over the past 15 years has focused on the psychological effects of being in what he calls a “scarcity mindset”. He argues that our mental bandwidth is over-stretched when we encounter scarcity, and as a result, we end up making worse decisions. In other words, since our minds are busy dealing with the scarcity we encounter, we can’t devote as much time or cognition to other problems at hand7. This rings true especially when it comes to poverty, which Shafir refers to as an “all-consuming” decision-making context. In one of his experiments, Shafir found that farmers performed worse on a standardized exercise before a harvest, compared to after a harvest. Controlling for a wide range of factors (for example, the stress that comes before a harvest), Shafir and his colleagues found that because farmers were poorer at the beginning of the harvest, it made it more difficult for them to make accurate judgments than after the harvest, when they were significantly better off and weren’t as affected by scarcity2. In 2013, Shafir and Sendhil Mullainathan co-wrote a book devoted to this concept – Scarcity: Why Having Too Little Means So Much. One of the book’s experiments shows how devoting mental resources to financial challenges decreased low-income individuals’ IQ by thirteen points8. It’s a highly recommended read for anyone interested in the impact of poverty on our mental well-being and it explores some practical ways that individuals and society at large can get better at managing scarcity, and assist those in situations of poverty to make better decisions.
“Despite the demanding struggle with challenging circumstances, people in poverty encounter disdain rather than admiration, and obstacles rather than support”.7
Eldar Shafir was born in Israel in 1959 and he moved to the United States in the 1980s. He recieved a BA in Cognitive Science from Brown University in 1984, followed by a Ph.D. from Massachusetts Institute of Technology in 1988. Shafir went on to spend much of his career at Princeton, where he is currently the William Stewart Tod Professor of Psychology and Public Affairs at the Woodrow Wilson School of Public and International Affairs. He did, however, hold several Visiting Professor positions, including at The University of Chicago, Universita` Ca` Foscari in Venice, Pompeu Fabra University in Barcelona, Universidad Torcuato Di Tella in Buenos Aires, and the DUXX Graduate School of Business Leadership in Monterey, Mexico.9
A major theme throughout Shafir’s research has been the influence of environmental and contextual factors on our decision-making capability. In the 1990s, Shafir co-authored several papers with renowned psychologist Amos Tversky which explored how factors such as risk, uncertainty, and conflict can help explain our sometimes ‘irrational’ behavior. From the mid-2000s on, Shafir devoted his attention to the role that scarcity and poverty have in shaping our decisions.
A longtime believer in the power of behavioral insights to bring improvement to society, Shafir co-founded the non-profit research organization Ideas42 in 2008. Since then, Ideas42 has delivered hundreds of projects aimed at improving the well-being of individuals around the world. Some of their interventions include providing feedback to energy consumers on how their energy usage compares to that of their neighbors and tweaking the structure of workplace pensions to encourage more people to save for retirement.10
Shafir has received several awards and honors, including the Guggenheim Fellowship, the Chase Memorial Award, and the Hillel Einhorn New Investigator Award. He was also one of Foreign Policy Magazine’s 100 Leading Global Thinkers of 2013. He is a Past President of the Society for Judgment and Decision Making, a member of the Russell Sage Foundation Behavioral Economics Roundtable, and a Senior Fellow of the Canadian Institute for Advanced Research. In 2012, he was appointed to the President’s Advisory Council on Financial Capability by Barack Obama.
- AcedemiWales, 2017 – A Behavioral Perspective on Decision Making and Policy
- The Aspen Institute, 2013 – Eldar Shafir on the Psychology of Scarcity
- TEDxMidAtlantic, 2011 – Living Under Scarcity
- The Bennett Institute for Public Policy, University of Cambridge, 2018 – Towards Behaviorally Informed Policy
- Ideas 42, How Behavioral Science Can Improve Financial Technology Innovations
- Princeton University, Department of Psychology Website, Retrieved December 21, 2020, from https://psych.princeton.edu/person/eldar-shafir
- Shafir, E. (2017). Decisions in poverty contexts. Current Opinion in Psychology, 18(1), 131-136. https://doi.org/10.1016/j.copsyc.2017.08.026
- Redelmeier DA, Shafir E. Medical Decision Making in Situations That Offer Multiple Alternatives. JAMA. 1995;273(4):302–305. doi:10.1001/jama.1995.03520280048038
- Shafir, E., & Thaler, R. H. (2006). Invest now, drink later, spend never: On the mental accounting of delayed consumption. Journal of economic psychology, 27(5), 694-712. https://doi.org/10.1016/j.joep.2006.05.008
- Shafir, E., Diamond, P., & Tversky, A. (1997). Money illusion. The Quarterly Journal of Economics, 112(2), 341-374. https://doi.org/10.1162/003355397555208
- Tversky, A., & Shafir, E. (1992). The disjunction effect in choice under uncertainty. Psychological science, 3(5), 305-310.
- Mani, A., Mullainathan, S., Shafir, E., & Zhao, J. (2013). Poverty impedes cognitive function. science, 341(6149), 976-980. https://doi.org/10.1111/j.1467-9280.1992.tb00678.x
- Mullainathan, S., & Shafir, E. (2013). Scarcity: Why having too little means so much. Macmillan.
- Eldar Shafir Curriculum Vitae (2013). Accessed online 23/12/2020: https://spia.princeton.edu/sites/default/files/person/cvfiles/Shafir-CV.pdf
- Ideas42, About Us. Accessed online 23/12/2020: https://www.ideas42.org/learn/